SAR #9304

Wars still have moral implications.

Crushing Cushing: Ever wonder why oil is priced by how much it costs in the little town of Cushing, Oklahoma? The Saudis have decided that won't do and are going to drop “West Texas Intermediate” as a benchmark and institute a new one based on the cost of crude on the US Gulf Coast.

Ugly, Ugly: New home sales fell 3.6% m/m in September, and down 7.8% y/y – at this rate only 402,000 new houses will be sold in the US in a year.

Reclama: Taken aback at the 3.5% GDP jump? Did you forget that Cash for Clunkers spiked auto output by 157% - and added 1.66% to GDP all by itself? And the Buyers' Bribe for houses lead to a 23% jump in residential sales, which is good for at least a quarter point of the GDP jump. So adjusting for one time things and government gifts, GDP growth was probably about 1.65% which is what a $1.3 trillion deficit will buy.

Flowers, not: Following an agreement with Russia to settle trade debts “in local currency”, Turkey has now agreed to use “national currencies” in trade with Iran and China. Pay attention to Turkey, they haven't forgotten their history, even if you have.

Fanny Fox? A South Carolina deputy assistant state attorney has been caught with a stripper in a graveyard. No relation to Wilber.

Simpleton Math: Delinquencies of 30 days or more are now reported on nearly 50% of all Option-ARMs. If they can't make the minimum “option” payments now, what is likely to happen when these mortgages recast and they have to start paying a full amortizing payment?

Fantasy Sport: Pimco's Bill Gross says the Fed, in an attempt to keep the economy “on the green side of the grass” will keep interest rates at zero forever. He did not use the term “ till hell freezes over.”

Solution #1: The main ingredient in building a nuclear weapon is determination. The process is tedious and exacting, but well known. The world now has 8 nuclear-armed states, two of which, the US and Russia, have embraced the concept of preemptive nuclear strikes. And the best defense is a good offense.

Perspective: The economy grew at an annual 3.5% rate in Q3. Unemployment fell by 1,000 to 530,000. Faint cheers are heard in Mudville.

One View: Credit bubbles burst with the same enthusiasm that expanded them, only faster. If the deflationary contraction is to equal the credit bubble, it will be the largest contraction since the South Seas Bubble and the Great Tulip Mania. House prices, for example, will likely fall 90% before the bottom is reached. Expect serious social fragmentation, general strikes and a breakdown in public services – healthcare, garbage, water, education as the economy and the markets fall for half a decade. Denial about the gravity of our situation is one of its greatest dangers.

In Case: The Case-Shiller index peaks in the summer, every summer, then falls off; be prepared for a 10 – 15% decline by next spring.

Armeggedon is Near: Jeffrey Brown of Export Land Model fame, and Dr. Foucher of logi Energy, believe that Saudi Arabia reached its peak production ability in 2005 and will never exceed that level, and that by 2013 there will be global oil shortages in the US and other OECD countries, even at the current low demand levels. Elsewhere OPEC says it will raise output if there’s a “real” shortage in supply. One group is selling advice, the other oil.

Two-fer: Two charts from the St Louis Fed: One shows commercial and industrial loans tanking and the other one is a tad boring.

Off-Stage: In South Florida the number of houses and condos in the foreclosure pipeline is five times larger than the current inventory on the market. Let's rush out and buy a place with the government incentive, you first..